This is exactly the kind of confusion that happens when you're new to having employees! The good news is that since you only paid $270 for what sounds like a one-time gig, you're likely in a much simpler situation than you think. Based on what you've described - paying someone to help with your side business for a short period - this really sounds like independent contractor work rather than traditional employment. If you didn't control how or when they did the work and just paid them for completing a task, that's typically contractor territory. Since contractors only require a 1099-NEC if you pay them $600 or more in a year, your $270 payment probably doesn't trigger any federal filing requirements at all. No Form 941, no Form 944, no Form 940 - just keep the receipt as a business expense. However, if you're certain they were an employee (you controlled their work schedule, provided tools, etc.), then Ashley's advice about Form 944 vs 941 is spot-on. But honestly, I'd recommend taking a step back and really evaluating whether this was employee vs contractor work first. It could save you a lot of paperwork!

This thread has been super helpful for understanding the contractor vs employee distinction! As someone who's also navigating small business employment issues for the first time, I wanted to add that even if Miguel's situation turns out to be contractor work (which seems likely given the one-time nature and $270 amount), it's still worth understanding these Form 941/944 rules for future reference. One thing I learned recently is that the IRS has some really good resources on their website about worker classification - Publication 15-A has detailed examples that can help determine if someone is an employee or contractor. The "behavioral control," "financial control," and "relationship type" tests they outline are pretty straightforward once you understand them. Also, for anyone else reading this thread, state requirements can be different from federal ones. Some states have stricter rules about worker classification or lower thresholds for various tax filings, so it's always worth checking your specific state's requirements even if you're clear on the federal side. Miguel, definitely sounds like you're probably dealing with a contractor situation and can skip all the payroll tax headaches, but keeping good records of that $270 payment is still important for your business expense deductions!

I'm currently going through this exact same nightmare! Filed our S-Corp election in March and have been stuck in IRS limbo for months with no CP261. This thread has been incredibly valuable - it's both frustrating and reassuring to see how widespread this issue is. I'm planning to implement the multi-pronged approach that several people have had success with: filing Form 911 with TAS, sending a certified letter to Cincinnati, and using the strategic language tips when calling. The "entity determination" and "Entity Classification Election Acknowledgment" terminology suggestions are brilliant - I tried the entity determination approach yesterday and actually got transferred to someone more knowledgeable for the first time in weeks. One additional tip I learned from my tax attorney: when documenting your calls (which everyone should absolutely be doing), include the employee ID numbers if the representatives provide them. This can be helpful if TAS or Cincinnati needs to reference your previous attempts when working on your case. The success stories from Dmitry, Victoria, and others give me hope that persistence with multiple channels really does pay off. Starting my Form 911 application today and getting that certified letter ready for Cincinnati. Thanks to everyone who shared their experiences - this community support makes navigating this bureaucratic nightmare much less isolating!

I'm dealing with this exact same S-Corp election nightmare right now! Filed Form 2553 in February and have been stuck in the same endless loop of IRS phone transfers and non-responses for months. This thread has been absolutely invaluable - it's both maddening and comforting to see how widespread this CP261 issue is. Reading through everyone's experiences and solutions has given me the first real hope I've had in weeks. I'm definitely going to implement the multi-pronged strategy that multiple people have had success with: filing Form 911 with TAS, sending that certified letter to the Cincinnati office, and using the strategic calling approaches with "entity determination" language. The fact that people like Dmitry, Victoria, and others actually got resolution through these methods gives me confidence that persistence will pay off. One thing I wanted to add - my CPA mentioned that we should also consider requesting a transcript of our business account from the IRS, as sometimes S-Corp elections show up there even when representatives claim they can't find any record. You can request it through Form 4506-T or sometimes online through the Business Online Account system. Starting my documentation log today (wish I'd done this months ago!) and preparing my Form 911 application. Thanks to everyone who shared their stories and solutions - this community support makes navigating this bureaucratic maze so much more manageable!

Don't forget about the actual allocation process once you've got your total purchase price (including assumed debt)! The IRS is super picky about how you allocate across the 7 asset classes. You have to go in order from Class I to Class VII and you can't just randomly assign values. This matters because different classes get different tax treatment.

I went through this exact same situation when I bought a restaurant last year. The confusion about where to put assumed debt on Form 8594 is super common because the IRS instructions are terrible about explaining it clearly. What helped me understand it was thinking of it like buying a house with a mortgage - you're still "paying" the full purchase price even though part of it is debt you're taking on. In your case, you gave the seller $133k cash AND took on $42k in debt obligations, so your total consideration is $175k. The key thing that tripped me up initially was realizing that Form 8594 doesn't have a separate line for "debt assumed" - it just cares about the total purchase price and how you allocate that across asset classes. So you put $175k as your total consideration, then figure out how much of that $175k should be allocated to equipment (Class V), inventory (Class IV), etc. Make sure you keep good documentation of the debt assumption in your purchase agreement since that supports the $175k total if the IRS ever asks questions later.

Anyone else think the W-4 system is totally broken? Why do we have to figure this out ourselves? The government already knows how much we should be paying!

This is exactly what happened to us a few years ago! We learned the hard way that claiming the same child on both W-4s is a recipe for underwithholding. Here's what we did to fix it: 1. We had the higher earner (in your case, the $70K spouse) claim the child on their W-4 2. The lower earner ($45K spouse) should file a new W-4 with "Single or Married Filing Separately" checked in Step 1, even though you're married - this increases withholding 3. Consider adding extra withholding on one or both W-4s to be safe The income difference between you two isn't huge, but the higher earner claiming the child will still result in slightly better withholding accuracy. Most importantly, get those new W-4s submitted ASAP since you're already behind on withholding for this year. Pro tip: After you make the changes, check your next few pay stubs to make sure the withholding increased appropriately. You should see a noticeable bump in federal tax withheld from the higher earner's paycheck.

This thread has been absolutely invaluable for understanding the serious risks behind these per diem schemes. As a newcomer to the contracting world, I had no idea how widespread these questionable arrangements were or how devastating the consequences could be. What really struck me was the consistency of everyone's advice - from experienced contractors to those with government compliance backgrounds, everyone is saying the same thing: these arrangements are extremely risky and not worth the potential consequences. The $40K audit story and the escalation to potential criminal fraud charges really drive home just how much is at stake. The practical advice about requesting written documentation from tax professionals seems like such a simple but effective litmus test. If recruiters are confident these arrangements are legitimate, they should have no problem providing proper backing. Their refusal or defensiveness tells you everything you need to know. For Sofia and anyone else facing similar situations, it sounds like the safest approach is to counter with a fully taxable offer at the equivalent rate and walk away if they won't restructure it properly. No job opportunity is worth risking your financial future or legal standing. This is exactly the kind of community knowledge sharing that helps people avoid costly mistakes. Thanks to everyone who took the time to share their expertise and real-world experiences!

This whole discussion has been incredibly enlightening about the predatory nature of these per diem schemes. As someone who's been in government contracting for over a decade, I can confirm that these arrangements have become increasingly common and increasingly scrutinized by the IRS. What I find most concerning is how these recruiting firms specifically target software engineers and other high-paid contractors who may not have deep tax expertise. They present these schemes as "industry standard" or "tax optimization" when they're really just shifting compliance risk entirely onto the contractor. The key point that keeps getting reinforced here is that legitimate per diem requires a genuine temporary work assignment away from your established tax home. A planned 18+ month relocation with expected permanent conversion completely fails this test under any reasonable interpretation of IRS guidelines. I've personally seen the aftermath of these schemes - contractors who thought they were being savvy about taxes suddenly facing audit bills that exceeded their entire annual savings. The interest and penalties compound quickly, and the stress of dealing with IRS enforcement can be overwhelming. For Sofia and others facing similar offers, I'd echo the advice about requesting written tax opinions and being prepared to walk away. The contracting market has plenty of legitimate opportunities that don't require gambling with your financial future. Your instincts about this being sketchy are absolutely correct - trust them.